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The Intraday Behavior of Bid-Ask Spreads for NYSE Stocks and CBOE Options

Published online by Cambridge University Press:  06 April 2009

Kalok Chan ,
Y. Peter Chung  and
Herb Johnson
Kalok Chan
Affiliation:
College of Business, Arizona State University, Tempe, AZ 85287
Y. Peter Chung
Affiliation:
Anderson Graduate School of Management, University of California, Riverside, CA 92521.
Herb Johnson
Affiliation:
Anderson Graduate School of Management, University of California, Riverside, CA 92521.
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Abstract

We study the intraday behavior of bid-ask spreads for actively traded CBOE options and for their NYSE-traded underlying stocks. We confirm previous findings that stocks have a U-shaped spread pattern; however, the options display a very different intraday pattern—one that declines sharply after the open, and then levels off. Our results suggest that both the degree of competition in market making and the extent of informed trading are important for understanding the intraday behavior of spreads.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 3 , September 1995 , pp. 329 - 346
Copyright
Copyright © School of Business Administration, University of Washington 1995

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